In November 2022, PCAF launched the first global accounting and reporting standard for insurance-associated GHG emissions.
Moody's Analytics answers some commonly asked questions from insurers, discussing the related groups and protocols and why it is important to act now.
What is PCAF?
The Partnership for Carbon Accounting Financials (PCAF) is an industry-led partnership formed in 2015. PCAF aims to standardize the way financial institutions measure and report financed emissions, insurance-associated emissions, and facilitated emissions. PCAF's widely adopted Greenhouse Gas (GHG) Accounting and Reporting Standard (2020) was expanded to include insurance-associated emissions in November 2022, covering personal motor lines, and commercial lines.
What are Insurance-Associated Emissions (IAEs)?
Insurance-Associated Emissions (IAEs) are a type of Scope 3 GHG emissions associated with an (re)insurer's underwriting activities. For many insurers making the commitment to transition to net zero, IAEs can be a significant source of overall emissions.
What is the difference between an insurer's financed and insurance-associated emissions?
Financed emissions refer to emissions associated with lending and investments. Insurance-associated emissions refer to emissions associated with an (re)insurer's underwriting activities. PCAF highlight that insurance-associated emissions and financed emissions are not directly comparable, should be reported separately, and should not be aggregated.
How are the insurance-associated emissions for a specific insurance policy calculated?
By taking the total emissions of the insured customer or asset and multiplying by an 'attribution factor'. The attribution factor reflects the proportion of emissions associated with the insurance cover provided. For commercial insurance policies, PCAF define the attribution factor as the ratio of Gross Written Premiums (GWP) to the customer's revenue.
The full article addresses other common questions from insurers.
- What is likely to be the main challenge in implementing IAE measurement?
- What are data quality scores in the PCF IAE standard?
- Why is the PCAF IAE Standard important?
- What is the Net Zero Insurance Alliance?
- Which lines of business are in scope of the NZIA Target Setting Protocol?
- What types of targets are covered by the NZIA Target Setting Protocol?
- Do Scope 3 emissions need to be included under the NZIA Target Setting Protocol?
- How should insurers decide on the portions of their underwriting portfolio covered by their targets?
- Why is it important for (re)insurers to start developing the capability to measure Insurance Associated Emissions (including Scope 3 emissions) now?
Read more about how Moody's Analytics solution can help your organization measure and report the emissions associated with your underwriting.